Describe the external and internal factors that influence the executive team’s decision making and specify which might be most instrumental in making the decision to become a for-profit entity. Why do you think so?
To date there has been no empirical examination regarding why hospitals increasingly prefer the for-profit over the not-for-profit corporate form. One explanation for conversions is generic: Recent years have seen many more hospital mergers in general, and thus we would expect more conversions of hospitals from not-for-profit to for-profit status. Of course, this raises the question why there have been so many hospital mergers. There have been many factors that may prompt not-for-profit hospitals converting to for-profit hospitals such as; financial instability, access to capital, profits, debt service, increased efficiency, self-interest, defensive strategies, culture, among many others. The most commonly mentioned factor in hospital conversion is the financial status of the converting hospitals. There are several related financial reasons that motivate not-for-profit hospital to sell to or partner with for-profit institutions. These include access to capital, current or expected profit reductions, and relief from debt burden.
Growth of managed care: The growth of managed care has reduced hospitals’ revenues in several ways. First, hospitals typically must have a contract with a managed care company to be included in a provider network. Physicians are generally prohibited from admitting patients to hospitals without contracts, except on an emergency basis. The threat of this lost volume creates pressure for hospitals to sign contracts at less than optimum rates (Collins et al, 2001).
I.Introduction Hospital Corporation of America (HCA) is propriety, hospital management company founded in Nashville, Tennessee in 1968 with only one, 150-bed hospital and then grew to become the nation’s largest hospital management company. As of 1981, HCA owned or managed 349 hospitals in the United States and overseas. During the 1970s, HCA achieved its growth by acquisition of existing ...
Federal balanced Budget Act 1997: The BBA affects Medicare reimbursement in several ways, including limiting increases in Medicare reimbursement rates to less than the measured level of inflation; reducing capital reimbursement by 17.8% from current levels; reducing Medicare payments to teaching hospitals for graduate medical education; reducing Medicare payments to hospitals that provide high levels of care to indigent patients; reducing reimbursement for certain Medicare patients who receive post-acute care services after a hospital stay; and; reducing reimbursement to managed care organizations participating in Medicare risk contracting (Collins et al, 2001).
Uninsured population: First, funding is not keeping pace with increases in charity care. For hospitals with high levels of charity care, the combination of the two subsidies helps offset the costs of bad debt (which hospitals suggest is often really documentable charity care, much of which comes from admissions through emergency rooms).
As the burden of charity care increases, however, more bad debts are left uncovered. Second, because the subsidies are funneled to high charity care hospitals, 18 hospitals receive no subsidies for charity care. Although the levels of charity care are not rising as quickly as these hospitals, they are still experiencing an increasing charity care burden in addition to other financial pressures (Collins et al, 2001).
Certificate of need: the Certificate of Need program may exacerbate the financial pressures on some hospitals, although in other cases it has worked to strengthen financially vulnerable hospitals. Eliminating certificate of need requirements for certain services has exposed hospitals to more market pressures as they compete with other hospitals and health care providers for patients. On the other hand, the remaining certificate of need regulations prevent hospitals from competing for certain services which they believe will strengthen their financial position. The commission also heard evidence that profitable outpatient services that once were provided by hospitals are now rendered in physician offices and other outpatient settings. Regulatory barriers may exist which constrain hospitals from developing timely and cost-effective ambulatory care services. In 1998, the Legislature created a Certificate of Need commission to determine which services, if any, should remain subject to certificate of need regulations (Collins et al, 2001).
This combination of land acquisition and building construction resulted in very low overhead for the business, which contributed to their start-up success. An addition to the building completed in 1991 included several new and related product lines such as garden tools, soils and mulch products, gifts, seeds, and related accessories. Gloria had earned a horticulture degree at the local community ...
Dated/obsolescent facilities, a mix of healthcare services which is out of line with market demand, excessive cost structure, human relations issues (conflicts between hospital management and physicians), length of stay, excess capacity, mergers and acquisitions, high costs, education all play a role in the conversion of a not-for-profit hospital to a for-hospital (Cutler & Horwitz, 2000).
In my opinion, changing laws and policies have an important role in the conversion, particularly when the government has modified tax preferences and eliminated subsidies for non-profit institutions. Federal loans and grants to nonprofit corporations under the HMO Act of 1973 were an important source of capital for development. The HMO’s subsequent shift to for-profit domination was fast and emphatic. The loss of the primary benefit of non-profit status, combined with the competitiveness of the insurance market, made conversion to for-profit status an increasingly attractive option.
Data needs to be collected in order to make informed decisions. Create an overview of the marketing data that needs to be collected and how you collect it.
According to Berkowitz (pg. 173 -173), the classification of data collection can be grouped into three; observational, experimental, and survey research. For the purpose of this study, I will be using survey research. In survey research, there are different methods that can be adopted for data collection which are telephone interviews, personal interviews, focus group, mail survey, and internet-based surveys (Berkowitz, 2011).
The delivery of health care is in term oil. With all the technology and medical advances, how can the consumer be sure they will receive the best possible health care available? I believe the answer lays with in the type of facility one uses. Look at the For Profit and Not for Profit agencies. At a not for profit agency, the money goes back to the community. In a for profit the money goes to the ...
I will be using internet-based survey to collect my data.
This conversion from non-profit hospitals to a for-profit status can be seen based on four measures: the provision of uncompensated care; the availability of traditionally unprofitable services such as 24hour emergency care; prices; and community representation on governing boards.
The findings for the above measures are as follows:
The hospitals that subsequently converted their status had higher prices, during the pre-conversion period, and offered fewer community oriented services than did comparison hospitals. Within the first three years after a conversion, the nonprofit to for profit conversion did not have any effect on the level of uncompensated care, prices or the availability of unprofitable services. On a long- term basis also, there were not any significant changes in prices or services among the converted hospitals. Non-profit conversions, however, were followed by shifts in the composition of hospital governing boards. Hospitals brought on board more senior management representation and included less community representation. Two positive by products of hospital conversions are that for profit hospitals pay local property taxes and conversions may prevent the closure of financially ailing nonprofit hospitals (Thorpe et al, 2000).
NON-FOR-PROFIT HOSPITAL CONVERSION | IMPACT |
Non-profit to for profit | Greatest conversion activity has been in health care field.Blue Cross Association allowed its members to be for profit by changing its bylaws.Communities struggle to retain their community assets. |
In a Legal context | Tools to be consideredEvaluating legislationModel Conversion LawsFormal public Participation and FundingDoctrines and remedies: Charitable Trust, CY pres., constructive trust |
Recognizing a conversion | Easily identifiable conversionsSubsidiaries, joint ventures, mutual agreement and demutualization. |
Causes | Managed care revolutionCompetitive nature of health industry |
Public impacts | Conversion foundations, new community benefit obligations, affordability and quality impacts. |
There is a short history when it comes to health care this history does provide a small view of how the United States decided that it would make a simple choice for supply and demand, this was done through fee-for-service to managed care, for PPOs, as well as other insurers of health care which also included the federal government. Fee-for-service in the early 1900s was thought of as the norm. for ...
(Thorpe et al, 2000)
In terms of market segmentation, determine the effects of transition on senior citizens, entry workers, adolescent populations, and families.
Senior citizens initially had benefits from Medicare or Medicaid, but due to this conversion of nonprofit hospitals to for profit, such benefits are not being provided to them. Life span has also increased for the past decade. As people are living longer, it is hard for them to pay for their medical services. From the not for profit hospitals, there were many benefits and almost free treatment which are now to be paid. Due to this, they have to purchase health insurance and that too a good one as they will face many sicknesses when compared to the younger group of people.
Entry level workers might expect their employer to cover their insurance, but due to this health care reform, the compulsory insurance has raised the price to a great extent and thus they have to pay a lot of their earning to purchase their insurance. It has been mentioned by researchers that employees will see another 9% rise in their health insurance costs. Many of these people who were previously enrolled with not for profit organizations have seen few better benefits and I think that this transition doesn’t greatly affect them as they are already facing issues with the new health care reform where they feel that they are paying mostly out of their pocket as the new health insurance does not cover many benefits and they might have to pay even more even for a slight increase in their benefits.
Adolescents and families will all be affected as the for profit hospitals will charge them more for every service rendered and they charge more than what the non-profits used to charge them and they won’t have any free services. The only advantage they will have is that, for profit hospitals will have good technology and skilled people will treat the patients. Due to the health reform, families are being affected greatly as low-income families will find it very hard to afford even the basic insurance for the whole family and that too with few benefits. As a result, they will have to pay out of their pockets. They might or might not receive any insurance from their employer, as that has become an option as well.
Studies show that at one period in time in February of 1992, 37 million Americans were without health care coverage. However, this study only included all people currently without insurance, that being their basis for believing that those people could not obtain health care of some sort. A more accurate figure to go on is 8 million Americans who are without health care capability, for three ...
Analyze all of this information to present to the board of directors of your organization for their review. Create a one-page memo address to the Board of Directors.
Memo to Board of Directors
From Ron Lewis
Subject: Non-Profit to Profit making
Date: April 29, 2012
For profit have a profit- maximizing goal unlike the non-profit hospital. A firm that is very profitable is most likely a for-profit firm and not a non-profit firm, because in that case the marginal benefit of perquisites to the entrepreneur is trivial. Profit maximization creates high-powered incentives, which promote shirking on quality. However, these incentives are softened if there is a commitment to non-profit status, which assures higher quality to the customers. Consequently, the entrepreneur can charge more or get more donations. This could be called contractual failure and can be understood as asymmetric information between the trading parties and the contract-enforcing judge. More altruistic entrepreneurs will choose non-profit status, because of higher quality. Because of this quality, customers prefer non-profits. If quality commitment cannot be observed, consumers still prefer non-profit status because it signals that the producer is relatively more interested in quality than in monetary rewards consumers are afraid that for-profit firms may be more willing to cut services to raise profits, in e.g. schooling and health industries. If altruism is not recognized, the non-profit status is even more important. The preference of dealing with non-profit firms does not only apply to customers, but also to employees and donors. Employees invest more in human capital at non-profit firms because these firms have less financial incentive to cut wages or perquisites ex post. Donors have better protection against expropriation when giving to non-profits. Non-profits flack incentives for efficiency and instead pursue other objectives such as a quiet life. Thus, to survive in the current market, for profit seems the best.
Collins, S.R., Gray, B.H., & Hadley J. (2001).
The for-profit conversion of non-profit hospitals in the U.S. health care system: Eight case studies. Retrieved from April 26, 2012
The market system determines what, how and for whom goods and services are produced. The consumer determines what to produce. An increase in consumer demand will lead to a rise in price and producers will respond to higher price by raising production- to make more profits. Competition between producers determines how to produce- if they do not want to produce as cheaply as possible they will go ...
Cutler, D.M. & Horwitz, J. (2000).
Converting hospitals from not-for-profit to for-profit status: Why and what effects. Retrieved from http://www.nber.org/chapters/c6759.pdf April 26, 2012
Thorpe, K.E., Florence, C.S., & Seiber, E.E. (2000).
Hospital conversions, margins, and the provision of uncompensated care. Retrieved from http://content.healthaffairs.org/content/19/6/187.full.pdf+html April 27, 2012
Berkowitz E.N. (2011).
Essentials of health care marketing. (3rd ed.).
Jones and Bartlett.